Impact of Digital Currencies on Traditional Banking Systems

Abstract

The advent of digital currencies, including crypto currencies and central bank digital currencies (CBDCs), has introduced a paradigm shift in the financial landscape. This paper explores the multifaceted impact of digital currencies on traditional banking systems, considering both opportunities and challenges. The study begins by examining the rise of digital currencies, highlighting their technological underpinnings and the driving forces behind their adoption. It delves into the potential benefits digital currencies bring to the financial sector, such as increased financial inclusion, faster and cheaper cross-border transactions, and enhanced transparency through blockchain technology. On the flip side, the paper critically analyzes the threats and challenges posed by digital currencies to traditional banking systems. Issues like disintermediation, operational risks, and the potential loss of control over monetary policy are thoroughly explored. Additionally, the paper investigates the regulatory landscape surrounding digital currencies, addressing the need for a coherent framework to ensure stability, consumer protection, and fair competition.